Local government expenditure and NECC

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Local government expenditure and NECC

• A discussion note

NECC Natural Resource Management Environmen
tal Management Climate Change
Mitigation Climate Change Adaptation
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Contents

• Introduction
• Decentralisaton and NECC expenditure
• Budget Classifiers and NECC expenditure
• Lessons for NECC spending

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1) Introduction

• Introduction
• Decentralisaton and NECC expenditure
• Budget Classifiers and NECC expenditure
• Lessons for NECC spending

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Hypotheses

• This workshop will discuss three hypotheses
• That local level resources and decision making
  can be more efficient in responding to the
  challenges of NECC
• That local level resources and decision making
  can be more effective in identifying these
  challenges and designing holistic solutions
• That providing resources locally will then enable
  these local institutions to buy in the services
  and expertise of higher level institutions on a
  demand driven basis. Likewise it will facilitate
  the pooling of resources between affected local
  governments

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Local NECC response (1)

• Whilst the challenge of NECC is global, the
  immediate effects are local. Just a few
  kilometres can separate the arid from the fertile
  or the disaster prone from the safe.
• Yet governments and development partners often
  respond by channelling resources into programmes
  covering large areas. These are sometimes
  inefficient and fail to recognise local
  specificity. Their effect can sometimes be
  counterproductive (for example to encourage to
  greater migratory pressure and conflict rather
  than dealing with problems at their source).

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Local NECC response (2)

• Whilst there are common issues surrounding NECC
  (managing the carbon cycle, for instance) its
  local reality is varied and highly specific. In
  some cases it requires a local disaster risk
  reduction / disaster management capacity, in
  other areas it requires new infrastructure such
  as small dams etc. In yet others it may require
  relocation of households.
• These are multiple configurations that do not
  easily fit into sector or ministerial boxes. For
  example - whilst the skills and resources of the
  Ministry of Health may be relevant in one case,
  the skills of a different agency are needed
  elsewhere. Furthermore, whilst environmental
  agencies can identify these issues they do not
  always have the mandate to resolve them.
• These challenges do not respect administrative
  boundaries. For example, they may affect three
  local government jurisdictions along a river
  bank, but not affect others on higher ground.

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Local NECC response (3)
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What is local government?

• For the purposes of this presentation we shall
  call local government the formal institutional
  arrangements for territorial governance at sub
  national levels as outlined in the previous
  presentation these can vary enormously in both
  size of territory and number of population on the
  one hand and responsibilities and functions
  attributed to them on the other hand. We shall
  explore how the type of local government and the
  type of expenditure management can impact upon
  local governments ability to respond to the
  challenge of NECC.

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Definitions

• Delegation A local agency empowered to do
  something on behalf of a central agency. It takes
  decisions in the name of the central authority
  and the central authority remains accountable for
  its performance.
• De-concentration - Staff and offices of an agency
  are located away from its headquarters. They
  still belong to the central body, still report to
  it, but are located somewhere else.
• Devolution Power and authority given to a body
  for specific areas of responsibility. In local
  government this normally means administrative and
  financial autonomy. The body is accountable for
  its actions.

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2) Decentralisaton and NECC expenditure

• Definitions and introduction
• Decentralisaton and NECC expenditure
• Budget classifiers and NECC expenditure
• Why does this matter to environmental spending?

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What is local government expenditure?

• Local government expenditure is the sum total of
  financial resources disbursed by local
  governments. This can be in the form of
• Salaries, pensions and other personnel
  obligations
• Goods and services
• Expenditure in capital investments
• Project expenditure in non capital projects
• Grants
• Loans
• Transfers (including to other levels of local
  government)
• Interest payments and debt servicing

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How is local government expenditure managed?

• There are many ways to answer this question. For
  the purposes of this presentation we shall focus
  on two aspects of local public expenditure
  management.
• Firstly the relevance of decentralisation
  arrangements to resource allocation for NECC
• Secondly the relevance of expenditure
  classifiers and budget codes to expenditure on
  NECC

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Budget approval - how does this differ?

• Delegation budget approved centrally as part of
  central agencies allocation but managed on
  central agencys behalf either by local
  representations of that agency or by a local
  government with devolved responsibilities.
• De-concentration budget approved centrally as
  part of allocation for local representation of
  central agency and managed by that local
  representation
• Devolution budget approved locally by devolved
  authority. Resourced by own revenue and fiscal
  transfers from other levels of government

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Budget methodologies

• Zero sum start from zero each year and
  reallocate according to what you now need with no
  attention paid to last years budget
• Programme allocate resources across and between
  agencies according to policy goals and objectives
• Incremental / departmental - each budget unit
  prepares a proposal with the previous year as its
  starting point.
• One of the above is ALMOST ALWAYS the model
  adopted in practice though it may be
  retrofitted to fit in with other models

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Expenditure and mandates

• Mandates for NECC are spread between a variety of
  central and local government agencies and operate
  at different levels. These include
• Environmental Protection
• Energy
• Forestry, Minerals and Mining
• Land Use Planning
• Public Works
• Water and Sanitation
• Health
• Education
• Expenditure is only possible against assigned
  mandates. In your country where do the mandates
  lie for these functions? Is there scope for
  delegation of mandates?

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Example of unfunded mandates
Example from Mozambique
Source D Jackson, 2004
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De-concentration conclusions

• In de-concentrated resource allocation systems
  the tendency is for departmental / incremental
  budgeting with little incentive for examination
  of NECC issues if they fall outside department
  mandate.
• Local programming of expenditure on NECC is
  possible by agencies with a NECC mandate if they
  are delegated the authority from the centre
• Otherwise these expenditures will be programmed
  by national agencies at a national level
• Programme budgeting models may oblige other
  agencies to include NECC as a consideration
  during local programming
• Discretionary local resources untied to any
  particular agency are another route for local
  programming of NECC

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Devolution conclusions

• In local devolved resource allocation systems the
  tendency is also for departmental / incremental
  budgeting at the local level with little scope
  for examination of cross cutting issues.
• There may also be greater limitations on capital
  budgets and less potential for investment.
  However there is scope for receiving delegated
  powers and / or revenue sharing with relevant
  agencies including other local governments.
• There may also be a greater perception of NECC
  issues on the other hand local politics may
  place less priority on NECC as shown in the next
  slide.
• There may or may not be departments that have
  NECC mandates at local level therefore the
  national regulatory environment is fundamental.
  To what extent are devolved local governments
  obliged to programme with NECC considerations in
  mind?

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Example of underfunded NECC
Example from Indonesia
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3) Budget classifiers and NECC expenditure

• Definitions and introduction
• Decentralisaton and NECC expenditure
• Budget classifiers and NECC expenditure
• Why does this matter to environmental spending?

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How is local government expenditure classified?

• For each dollar, baht or taka listed in the
  budget there are a variety of classifiers or
  codes that provide meaning to the expenditure.
  Inter alia these can include
• Organic the agency or department responsible
  for the expenditure
• Economic the economic nature of the expenditure
  capital items, goods and services, salaries,
  grants
• Programmatic whether the expenditure is related
  to a particular programme or policy
• Project or core whether the expenditure is for
  a defined set of activities with an beginning and
  an end or whether it is for ongoing agencyal
  existence.
• Territorial where the expenditure will occur or
  which part of the territory will benefit

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Organic classifier

• Most expenditure is driven by the organic
  classifier
• Organic the agency or department responsible
  for the expenditure
• Normally the body that also draws up the
  proposals
• Generally this is on an incremental basis (last
  year plus 5)
• Institutional incentives to maximise slice of the
  cake
• Up to 90 personnel related
• Very skilled at fitting their own priorities with
  the programme or policy labels currently in
  vogue
• NECC related departments? These are often not
  present at local level.

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Economic classifier (1)

• Most expenditure is programmed by Economic
  Classifier
• Personnel (salaries, pensions and other
  obligations)
• Goods (durable and non durable
• Services (from office cleaning to consultancies)
• Capital definition something that enters into
  the asset inventory
• Transfers including inter governmental ones to
  other units with administrative and financial
  autonomy (local government, airport authority,
  etc)
• Interest payments and debt servicing

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Economic Classifier (2)
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Economic Classifier (3)
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Programme Budgeting and its variations

• This is often seen as a panacea because it
  attempts to tie expenditure to objectives across
  institutions. Budget units are forced to link
  their expenditure to programmes.
• On the face of it a cross cutting environment
  and climate programme would seem to be an
  attractive idea.
• However it requires a high level of capacity (and
  extra resources) to make it work. And departments
  manage to re-label activities to fit the
  programme.

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4) Decentralisaton and NECC expenditure

• Definitions and introduction
• Decentralisaton and NECC expenditure
• Budget classifiers and NECC expenditure
• Why does this matter to environmental spending?

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Local Government Expenditure matters
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Local Expenditure and NECC
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How to enable a holistic response? (1)

• The previous sections have shown how sticky
  local expenditure can be and how difficult it is
  to change long term expenditure patters
• Yet we have also examined the potential of local
  level planning to define holistic responses to
  the challenges of climate change and the
  environment
• In addition, NECC challenges are not evenly
  spread across a territory
• It may be that specific measures are required to
  ensure resources are directed in its direction

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How to enable a holistic response? (2)

• These measures could include
• Examination of NECC related expenditure within
  the budget classifiers with the objective of
  maximising the resources attributed to this
  function
• A similar exercise with regard to the planning
  and programming for such expenditure
• Specific grants / transfers attributed to the
  local government specifically for this purpose
  but not tied to any institution.
• Mechanisms for the matching of these grants
  with the larger programmes of central government
  or with other local jurisdictions